“You cannot cut yourself to greatness” says Heineken CEO
Words of wisdom from Jean-Francois van Boxmeer on cost-cutting. Which is another way of saying: How far can you cut into the flesh before you strike the bone? Yet you could see London’s finest and sharpest analysts get hot under their EUR 140 shirt collars. What could this possibly mean? That Heineken intends to put more money behind its brands in Europe? Indeed, that’s what Heineken’s CEO told analysts at its 2010 results meeting on 16 February 2011. Mr van Boxmeer said Heineken plans to invest in advertising to reverse a slide in sales volumes in Europe, where Heineken is the largest beer seller, a move that will hurt short-term profits in the region.
The group has traditionally focused on maintaining margins, but signalled that it would sacrifice short-term profitability in favour of expanding its market-leading position through premiumisation and innovation.
As Mr van Boxmeer reminded analysts, Europe will continue to suffer from weak demographics. The cohorts of younger drinkers all over Europe are shrinking.
“You need to grow your share of the pie if the pie does not grow” said Mr van Boxmeer.
The group saw sales volumes in western Europe slide 3.5 percent during 2010. In central and eastern Europe volumes declined 8.6 percent.
The worst-hit markets included the UK, Spain, Italy, Ireland and the Netherlands, where beer consumption has fallen amid weak economic conditions.
Incidentally, Mr van Boxmeer also had to admit that it was cost cuts to the order of EUR 280 million and a EUR 199 million gain on asset sales that brought up profits in 2010. Much of the cost-cutting was done in the UK, where Heineken closed breweries in Reading and Dunston near Newcastle, and sold the loss-making Waverley TBS wine business. It also undertook a major reorganisation of its Scottish & Newcastle Pub Company management arm, with about 1,300 properties now in its portfolio.
Heineken’s net profit in 2010 was EUR 1.44 billion (USD 1.95 billion), up 41 percent from EUR 1.02 billion in 2009. Revenues grew 9.5 percent to EUR 16.1 billion.
Obviously, revenues were boosted by Heineken’s USD 7.8 billion acquisition of Mexican beer maker FEMSA, owner of brands such as Dos Equis and Tecate early last year. The acquisition helped lowering Heineken’s dependency on mature markets for its profits. In 2010 buoyant emerging markets represented 57 percent of Heineken’s profits and two thirds of its volume.
